RBSE Class 12 Business Studies Notes Chapter 14 Social Responsibility of Management and Corporate Social Responsibility

Rajasthan Board RBSE Class 12 Business Studies Notes Chapter 14 Social Responsibility of Management and Corporate Social Responsibility

Management – “Management can be defined as a process of getting the work done by others with the aim of achieving goals and efficiency.”

In present situations, the limits of relation between business, industries and customers, their fields, competition of business sector, awareness of the society, government interference of legal restrictions, technical research in business and society, revolution in information technology, etc. are such elements which are spreading at a very fast rate.

Attitude of managers or management towards the society and their responsibility towards it, is an important parameter of grading the enterprise.

Society is the basis of growth, development and existence of business. All the requirements of business are fulfilled by the society.

Need of society for business can be understood from the following table :

Therefore, all the requirements of business is fulfilled by the society. When society fulfills all the requirements of enterprises, it, in turn, keeps high expectations from the enterprises. It is the duty of management to fulfil with the expectations of the society.

Demands and needs of the society keep on changing with time. Management works hard to fulfil these requirements. Sometimes, with the intention of making more profit, entrepeneurs forget their duties towards society.

Milton Friedman defines, “Purpose of business is to make profits, business is an economic want and not a social institution.”

For such type of business thoughts, government has made laws to protect the welfare of the society. Laws compel the entrepreneurs to spend on social welfare programmes.

Many times, corporates houses take initiative to break the conservative, traditional thinking of the society by bringing changes in habits, behaviour and outlook of the customers and the society.

Management, by initiating campaigns, makes efforts to inform the society about new techniques, products, equipments, working styles, etc. Management assumes the responsibility to bring the society in the mainstream by changing its lifestyle, etc.

There is a moral justification that emerges from the fact that if someone takes anything from other, he must give something to him/her in return. A business takes various inputs from the society. Thus, it becomes an essential part of its responsibility to spend a part of profit so earned, on the society.

Plants and trees provide us oxygen to breathe and it is our duty to conserve them. If we fail to do so, there will be environmental and ecological imbalance and life will come to an end.

In the same way, whatever profits a business earns are earned by producing and selling the goods according to the wants of the society. If society will not exist, then the relevance of buying and selling and desire to earn profits will also not exist.

The business and management operates and sponsors so many social service or social welfare programmes like development of habit of washing hands in children, sanitation and health, creating awareness about cleanliness, assuming responsibility to train and develop skills in youths under skills development mission, to promote cashless transactions and by encouraging online transactions under Digital India Programme, to remove corruption by keeping digital records of all economic transactions, giving a part of profit to customers in name of discount, contributing to girl child or poor children’s education or for social welfare, by donating a part of sales revenue, sponsoring sports event to encourage sports, etc. Many such programmes run by management of industrial groups may be deemed under marketing strategy, but ultimately, the benefits of such programmes accrue to the society. This is social responsibility.

Definition of Social Responsibility

H.R. Bowen defines, “Social responsibility refers to the obligations to pursue those policies, those decisions or to follow those line of actions which are desirable in terms of the objectives and values of our society.”
Keith Davis defines, “Social responsibility refers to the businessman’s decisions and actions taken to reason, at least partially beyond the firm’s direct economic or technical interest.”
R. Joseph Monsen defines, “It may be best to define social responsibility of firm as one that anticipates what the public will expect from it and attempts to meet these demands before the public focused its criticism on it.”

Social Responsibility : Concept

There are different views of different thinkers and authors on the concept of social responsibility. Some experts are of the view that a manager can discharge his obligation to the society by creating goods and services in exchange of profit within the limits defined by law. But, to others, social responsibility is a behaviour in reaction to “currently prevailing social norms, values and performance expectations.”

Business must be accountable for the ecological, environmental and social problems. Thus, experts consider social responsibility as managerial efforts or contributions made towards programmes for public welfare’ and for community service like poverty alleviation, rural development, health, pollution control, conservation of environment, education and employment, etc.

Management is the economic and catalytic agent of society. Therefore, it should be voluntarily responsible for the development of economic and social values to safeguard the interest of consumers, to fulfil the aspirations of different sections of the society-males, females, youth, senior citizens, rural, urban professionals and to take intiative in launching a programme or plan or mission to prepare for future challenges.

A hierarchy of the extent to which business units discharge social responsibility is developed by R. Joseph Monsen.

Starting from the lowest level, there are four levels of hierarchy :

Obeying the law : Managers feel they are discharging social responsibility by merely obeying the law.
Catering to public expectations: Social responsibility goes beyond merely obeying the law. In addition to abiding by the legal framework of the country, social responsibility also caters to public expectations from the business enterprise. For example : providing job opportunities, quality goods, controlling pollution, etc.
Creation of public expectation : At the highest level of hierarchy, management not only caters to public demands, but also sets standards of social responsibility and wants the society to be benefitted by these standards.
Speculation of public expectation : At this level, managment speculates about public demands and needs and take necessary steps to fulfil those needs and demands. Robert D. Hay & Edmund R. Gray identity three phases in the development of social responsibility.
Profit maximising management: In this phase, the only objective of managers was to maximise profits and was seen as vehicle for eliminating economic scarcity. This concept is based on Adam Smith’s famous creation, ‘Wealth of Nations’.
This states that a business unit will produce only when it earn profits from producing the goods. In this way, when the society gives freedom to a businessman / industrialist to maximise profits, then his/her self interest becomes the basis for increasing production. That leads to greater availability of goods to the society. The philosopy behind this concept of management is “what’s good for me is good for my country.”
Trusteeship managment: This concept is inspired by the Great Depression. It is accepted here that management’s objectives are not limited to maximising management profits but it also has responsibilitity towards different stakeholders, and also the employees, customers, suppliers, bank and the community. According to this approach, the management should protect the interest of shareholders assuming that what is good for an enterprise is good for entire nation.
Quality of life management: This is the most recent phase of development of social responsibility which is different from both profit maximising management and trusteeship management approach. In this phase, in addition to their enlightened management, companies are expected to solve major social issues according to their knowledge of resources.
However, rather than simply defining the role of business as to provide the goods and services that are needed by society, this causes them to produce the amount of products or services that are needed by society which, in turn, benefit both the company and society.
Thus, this approach is based on this notion “what’s good for society is good for our company.” Accepting profit maximisation, believing in quality life, the management will not produce and sell goods that are harmful for the society.

New concept of social responsibility :

The development of concept of social responsibility has an impressive history. Earlier, it was restricted to welfare activities, but since the mid of 20th century, the concept of social responsibility has totally changed. From profit maximisation to trusteeship management till quality of life management, social responsibility has developed as a social obligation, social responsiveness and social performance.

The real nature of management is humane and social because it is the trustee of resources of society. Land, Labour and Capital is provided by the society to the enterprises. Therefore, management has to work according to the society’s demands.

According to R. Ackerman, in recent years, the society is having new expectations from management. Important among them is to provide leadership in eliminating social evils. According to Edward Cole, today, the biggest challenge before the management is to evalifete the continuously changing social aspiration and to act in a socially desirable manner.

Therefore, it is clear that concept of social responsibility is a comprehensive concept which encourages the managers to make decisions, keeping in view the values of social interest/social well being. In short, the social responsibility of management can be studied under three phases which are as follows:

1. Lowest level :

Social responsibility / duty : At this level, the management has the obligation to work for social betterment according to the prevailing laws and economic system. Managers feel that they are discharging social responsibility by merely obeying the laws or working for their self interest. In J. P. Sethi’s perception, “Social obligation represents the corporate behaviour that responds to market pressure or legal constaints.”

2. Middle level :

Congruence with social norms / social responsibilities : At this level the management discharges social responsibility in congruence with social norms, values, social conventions. Here, social responsiblity transcends social obligation, being actually a higher level, where it is congruent with the prevalance of norms, values and expectation in terms of performance.

Management performs its corporate social responsibility, voluntarily without any self interest alongwith trusteeship and good corporate citizen aspirations. But, at this stage, they do not consider public issues or societal issues.

3. Highest level :

Social sensitivity or social responsiveness : This level / stage is regarded as an adaptation of corporate behaviour to the social needs. This is a step of anticipating and prevention. At this stage, management gets aware, proactive, sensitive towards social issues, social problems and important global issues.

1. Towards ownsdf and their profession :

Following are the obligations of management towards ownself:

To take rational decisions, keeping in mind social interest.
To respect the profession.
To get the membership of professional organisation.
To follow the professional code of conduct.
To show professional courtesy.
To contribute towards the development of managerial research and knowledge.

2. Responsibility towards their business organisation :

A manager has following responsibilities to perform as his duty towards the business organization :

To operate successfully the business of the organization.
To create demand for business unit’s products/services.
To maintain competitive strength of the organisation.
To promote innovation in business.
To expand and grow the business.
To encourage reasearch and development activities.
To maintain profit earning capacity of the firm.
To build and enhance the goodwill and public image of the business.

3. Towards the Owners :

Because of separation of business management and owners, the management has the following obligations towards the business owners/shareholders :

To work as a custodian of capital contributed by owners, thereby ensuring safety of capital.
To share appropriate information with owners.
To ensure regular payment of return on capital.
To add value to the capital on a continuous basis to ensure capital appreciation.
To give equal treatment to all shareholders and work as their trustee.
Not to make private gains and not to do any fraud/embezzlement.
To provide regular, accurate, and complete information about the company’s working as well as schemes of future growth.

4. Responsibility towards creditors :

Creditors or investors or lenders play an important role in meeting the financial requirements of business. Therefore, the management has to fulfil the following obligations towards them :

To make productive use of debt money.
To keep fair conditions of interest and principal amount while taking loans.
To make regular and timely payment of interest and principal amount borrowed.
To keep custody of mortgaged asset.
To make available the required information to creditors.

5. Responsibility towards workers :

The employees and workers are the most important assets of business. They are not mechanical robots, they are sensitive and active factors of production. The management should fulfil the worker’s expectations by discharging the following responsibilities :

To pay fair wages/salaries and fair deal.
To implement incentive wage plans.
To provide safe working conditions.
To provide healthy working conditions.
To give them job security.
To form labour welfare programmes.
To fulfil statutory requirements for safety of workers.
To give meaningful work to the employees, according to their qualification and skills.
To organize training and development programmes for the overall development of the employees.
To give fair chances of promotion.
To give fair share of bonus and profits.
To provide new opportunities of career growth and personality development
To give them chance to participate in management.

6. Responsibility towards consumers :

Consumer is the king of market. Consumer’s satisfaction is the key to business success. The government protects the interest of consumers, so any avoidance in this regard can be fatal to business. Under these circumstances, the management has to fulfil certain responsibilities towards them, which are :

To study about their needs, wants, tastes, likings, etc.
To supply the right quality and quantity of goods and services to consumers at reasonable prices.
To offer products of uniform standard.
To ensure fair distribution of products.
To refrain from indulging in profiteering, hoarding, creating artificial scarcity of products.
To provide prompt and quick service to consumers.
To handle consumer grievances promptly.
To refrain from misleading product promoting practices.
To do research on markets, consumers and the goods of consumer utility.
To respect the consumer protection law.
To inform the consumer about the usage and features of products.
To follow the code of conduct.

7. Responsibilities towards suppliers :

To provide fair prices for the goods offered.
To determine fair condition of purchase.
To make timely payments to creditors.
To give opportunities to purchase raw material of new types.
To provide necessary market information.

8. Responsibility towards other businesses :

To maintain healthy competition.
Not to oppose and criticize other competitive business units.
To encourage cartels or unions for business efficiency and to promote social interest.
To refrain from monopoly and unfair trade practices.
Not to use the trade mark, brand, etc. of other business competitors.

9. Responsibility towards trade associations and professional organisations :

Management has the following responsibilities towards them :
To get membership of chamber of commerce and other business associations.
Not to make wrong use of literature published by them.
To follow their code of conduct made for members.
To give chance to the member students of these organisations to serve the business units.
To provide monetary contribution for implementation of programmes started by them.
To attend and participate in their meetings and to perform important discussions on related topics.

10. Responsibilities towards the community : Management has the following responsibilities towards the community :

To adopt socially desirable behaviour and standard of living and avoiding ostentation and wasteful expenditure:
To play a fair role in civic affairs.
To provide and promote general amenities and help.
To create better living conditions in general.
To conserve and preserve the natural wealth.
To contribute towards development of backward areas.
To preserve and promote social and cultural values.
To provide employment opportunities to local people.
To protect the environment from pollution.
To establish public welfare institutions like schools, hospitals, night shelters for the poor, etc.
To provide economic help to females, and to the disabled and weaker sections of society.

11. Responsibilities towards government :

The government plays a significant role in business operations. Therefore, business is responsible towards the government in the following form :

To abide by the policies, rules and regulations framed by government.
To operate the business according to government policies.
To pay taxes and other duties fully, honestly and truly.
To refrain from corrupting government machinery.
To make full use of production capacity and licence in the business.
To use economic resources in national interest.
To be cooperative in operation of national policies and national programmes, i.e. small savings, clean India, family welfare, etc.

12. Responsibility towards the world :

Today, the business has become global in nature. This creates the responsibility of management of business towards the entire world. Some of them are :

To provide assistance in promoting international trade.
To refrain from intervening in business policies or internal matters of other nations.
To adopt international technology and techniques.
To follow the business ethics and norms of international business.
To provide technical and managerial assistance to developing and backward nations.
To establish business/industries in backward countries.
To be concerned about healthy competition, just behaviour and cordial relations with other countries.
To respect the social and cultural values of trading nations.

(Corporate Social Responsibilities – CSR)

Business organisation has different duties towards society in many ways. Business organisations are expected to fulfil their responsibilities towards different sections of the society. An attempt has been made to give it a legal shape for the first time through Indian Companies Act, 2013.

In simple words, CSR means activities of business organisation for the benefits of different sections of the society.

The ministry of corporate affairs, government of India, has recently notified the section 135 of the Companies Act, 2013 alongwith Companies (CSR policy) Rules, 2014 and other notifications related thereto, which makes it mandatory for certain companies who fulfil the criteria as mentioned under sub section 1 of section 135 to comply with provisions related to CSR.

As per the said section, the companies having a net worth of ? 500 crore or more or turnover of? 1000 crore or more or a net profit of ? 5 crore or more during any financial year, shall be required to constitute a CSR committee on the board. The committee shall comprise of 3 or more directors, out of which, at least one director shall be an independent director.

The board’s report shall disclose the composition of the CSR committee. All such companies shall spend, in every financial year, at least two per cent of the average net profits of the company made during three immediately preceding financial years, in pursuance of its CSR policy.

Such companies shall be required to incorporate in its board reports, an annual report on CSR, details of CSR expenditure during the financial year, and in case the company has failed to spend 2% of the average net profit of the last three financial years, the reasons thereof.

CSR committee shall formulate and recommend to BOD, CSR policy on the lines specified. The company is required to give preference to local areas where it operates, for spending the amount earmarked for CSR.

Provisions under Companies Act, 2013

Following are the provisions under Companies Act, 2013 effective from 1st April, 2014.

1. Applicability :

Every company having net worth of rupees five hundred crore or
more, or a turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year shall constitute a corporate social responsibility committee of the board consisting of three or more directors, out of which at least one director shall be an independent director. [Section 135(1)]

2. Expression in board report :

The board’s report under sub-section (3) of section 134, shall disclose the composition of the corporate social responsibility committee. [Section 135(2)]

3. Functions of the corporate social responsibility committee :

Formulate and recommend to the board, a corporate social responsibility policy, which shall indicate the activities to be undertaken by the company as specified in schedule VII.

Recommend the amount of expenditure to be incurred on the activities referred to in Clause (a).

Monitor the corporate social responsibility policy of the company from time to time. [Section 135(3)]

4. Action taken by board :

The board of every company referred to in sub-section (i) shall:

After taking into account the recommendation made by the corporate social responsibility committee, approve the corporate social responsibility policy for the company and disclose the contents of such policy in its report and also place it on the company’s website, if any, in such manner as may be prescribed.

Ensure that the activities as are included in corporate social responsibility policy of the company are undertaken by the company.

4. CSR expenditure :

The board of every company referred to in sub-section (1) shall ensure, that the company spends, in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years, in pursuance, of its corporate social responsibility policy.

5. Mention of failure to spend :

If the company fails to spend such amount, the board shall, in its report made under clause (0) of sub section (3) of section 134, specify the reasons for not spending the amount.

6. Preference to local areas :

That the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for corporate social responsibility activities.

7. Calculation of net profit :

For this purpose, average net profit will be calculated in accordance with the provisions of section 198.

8. Other provisions:

Every company, including its holding or subsidiary company, and a foriegn company defined under clause (42) of section 2 of the act, having its branch office or project office in India, which fulfills the criteria specified in sub-section (1) of section 135 of the act.

A company may also collaborate with other companies for undertaking projects or programs or CSR activities in such a manner that the CSR committees of respective companies are in a position to report separately on such projects or programs in accordance with these rules.

Subject to provisions of sub-section (5) of section 135 of the act, the CSR projects or programs or activities undertaken in India only shall amount to CSR expenditure.

The CSR projects or programs or activities that benefit only the employees of the company and their families shall not be considered as CSR activities in accordance with section 135 of the act.

An unlisted public company or a private company covered under sub-section (1) of section 135 which is not required to appoint an independent director pursuant to sub-section (4) of section 149 of the act, shall have its CSR committee without such director.

A private company having only two directors on its board shall constitute its CSR committee with two such directors.

The CSR committee shall institute a transparent monitoring mechanism for implementation of the CSR projects or programs or activities undertaken by the company.

CSR expenditure include all expenditures including contribution to corpus for projects or programs relating to CSR activities approved by the board on the recommendations of its CSR committee, but shall not include any expenditure on an item not in line with activities which fall within the purview of schedule VII of the act.

CSR reporting : The board’s reports of a company covered under these rules pertaining to a financial year commencing on or after the 1st day of April, 2014 shall include an annual report on CSR containing particulars specified in annexure.

In case of foriegn companies: The balance sheet filed under sub clause (b) of sub section (1) of section 381 shall contain an annexure regarding report on CSR.

A Case Study of CSR Cairn India Company : Story of its CSR in Banner (Western Rajasthan)

Rajasthan government is promoting the development of Barmer district through various community development programmes in collaboration with different corporates. The Mangala discovery in Rajasthan in 2004 was the largest onshore discovery in the country in the past two decades, in the private oil-producing sector in India, by Cairn India, producing crude oil in Barmer which includes a part of Thar Desert.

Barmer district came into news in 2004 due to its large oil basin. Cairn has initiated a key CSR intervention to the government of Rajasthan in its effort to provide benefits of community development programmes to the masses. Jeevan Amrit, Clean India mission, solar projects and many more such projects are successfully implemented by Cairn India Corporation.

1. Jeevan Amrit project :

Hundreds of villages in the desert district of Barmer are receiving clean and safe drinking water as a part of Cairn India CSR initiative as per the MOU signed between PHED of Rajasthan and Cairn enterprise centre society. Accordingly, Cairn India initiated the Jeevan Amrit pilot project to ensure safe drinking water through establishment of RO facilities.

In partnership with PHED and government of Rajasthan, it will establish 333 water purification units across the districts over three years. Till now, 34 RO plants have been established. At present, for this pilot project, water committee is responsible for collecting all user charges and operations and maintainance of the RO facility. Water ATM Kiosks have been established at a number of access points.

2. Solar lighting project :

Cairn India presented the villagers 27 KW solar mini projects grid to village Meghwalon Ki Dhani, situated at the border of Barmer. The villagers are elated, many having seen electricity for the first time. In partnership with Sun Edison and 10 local electricians, Cairn completed the entire task in a record period of 90 days.

As a result of this project, local schools have electricity for the first time, to facilitate computer-based learning, Mala Ram, Mena Ram, etc. glowing with an unusual smile on their face, say—“It is a different world now. We have not got only power to light our hutments, but also a chance to have television in our village.”

3. Sanitation project :

Under Nirmal Bharat Mission and Swachh Bharat Mission, Cairn India, since 2013, under a CSR strategy, supplements the government schemes on the basis of PPP and has started the work of construction of one toilet and bathroom for every individual household in 3 gram panchayats in Beriwala Tala, Bhandkha and Mundo ki Dhani. For 4500 rural families in Barmer, 2657 toilets were constructed by Cairn India. It has a plan to cover 100% households in 31 villages to make them open-defaction—free panchayats.

4. School education improvement project :

Under this project, from Sept. 2013, Cairn India is adopting government schools of identified areas with an objective to improve the quality of education. Such programmes for improvement are operated for solving the problem of lack of teachers, deficiency of teaching-learning aids, etc. especially in the local secondary schools. Under this program, infrastructure has been developed in schools, teaching-learning aids and computer and science laboratories have been provided and established in the schools.

5. Projects for community health programme :

In collaboration with the Rajasthan government and other local institutions, Cairn is striding towards developing community health programmes with the introduction of female gynaecologists who now accompany the health vans, as over 55% of the villagers who seek treatment are women. Currently, 14 mobile health vans are providing basic medical services at the doorstep of rural people across 144 villages in Rajasthan.

6. Green Barmer Mission :

‘Green Barmer Clean Barmer Mission’ was started in 2013 with an objective to create awareness in people about sanitation. Taking this mission a step ahead with Cairn India’s cooperation, the government hospitals of district headquarters have started cleaning and beautification of hospitals. Today, there is better and cleaner environment for patients in community health centres.

7. Multi-speciality health camps :

Since 2015, Cairn India, along with the government of Rajasthan, has been taking initiatives under CSR activitions, for health care, health awareness projects. The main objective of these programmes is to improve the quality of government health centres, to promote health awareness camps.

So far, 30 multispeciality health camps and 35 health awareness camps have been conducted by Cairn. Cairn India is working efficiently in providing healthcare programmes for mothers and children supporting the national health related campaigns.

8. Graduate employment training programmes :

In both the Government Inter Colleges of Barmer district headquarters, Cairn India Limited has colloborated to start a computer lab and build classrooms to increase the efficiency of the students.

9. Building toilets in Schools of Banner :

Cairn has extended its support beyond the national Swachh Bharat Abhiyan and has committed and built 161 school toilets in 91 schools of Barmer in partnership with the government of Rajasthan to provide a clean and healthy environment to the students.

10. Cairn enterpreneurship centres :

Cairn is contributing towards the development of human resources through its centres of excellence (CCOE) at Jodhpur, which was established for conducting more advanced courses. In 2015-16, it signed a MOU with Rajasthan Skills and Livelihood Development Corporation with IIT Kota, MNIT Jaipur.

Till April 2016, 300 students have completed the training and have received job offers from reputed companies. In 2014-15, under vocational training programmes conducted by Cairn enterprise centre, 7 satellite centres have been opened to equip the local youth with knowledge and skills to obtain gainful employment.

Additional labs were established, two IITs were adopted to enhance employability to local community, a career resource centre was eatablished at Barmer College and CEC for soft skill training career counselling and placement. So far, 12,000 students have benefitted from these training centres. The reach of these programmes is widening their scope and deepening along with the passage of time.

11. ITI adoption programmes :

Keeping in mind the new industrial development opportunities, it is essential to bring a change in training standards of ITI. The directorate of technical education, government of Rajasthan, and Cairn India Ltd., signed a MOU to upgrade government ITIs at Barmer and Balotra.

As per MOU, Cairn India will adopt these ITIs and shall provide for reimbursement of infrastructure and provision for supplementary teachers. It shall be responsible for faculty recruitment training, industry visits, transaction of curriculum and training, delivery and monitoring support, etc. to make the courses, market-relevant.

12. Farm-based sustainable livelihood programmes :

Recognising the need of farmers, Cairn launched the Banners Unnati Programme 2013 in partnership with Technoserve. This programme provides the farmers access to high quality farming inputs and introduces new agricultural techniques and strategies.

Additionally, under the Cairn Agri Fellow Components, rural youth are being trained in agronomy and agri business. Cairn farm based sustainable livelihood programmes, like development of Khadins, Nadi project, rainwater harvesting project, silvepastoral units, Dairy development programmes, etc. are making rural families seek supplementary incomes and are providing improved income earning opportunities to local rural people.

13. Aanganwadi projects :

To develop and modernise Aanganwadi, the ministry of women and child development and Cairns India signed a MOU to build 4,000 next generation Aanganwadis. As per MOU, 4,000 such nation-wide Aanganwadis are to be developed, and under the first phase of developing 50 Aanganwadis, the first centre was inaugurated and started in Cheeter ka Paar village of Barmer.